Newly built homes continue to sell well, partly due to a shortage in housing supply but also because of competitive interest rates for homebuyers. According to a new Redfin report, 31.8% of single-family homes for sale were new construction, a slight dip from last year’s high rate of 31.9% in the fourth quarter of 2023.
New home construction has grown rapidly in the past decade out of necessity to serve consumers. The number of new constructions on the market is increasing, along with new developments in the pipeline, making it easier for buyers to choose a new home. Because interest rates for homebuyers are also highly competitive, purchasing a new house is sometimes a better choice for homebuyers.
If given the choice, some buyers would prefer a newer home with the prospect of few short-term repairs and less of a financial commitment.
A higher availability of new homes on the market has likely spurred sales of new homes.
“Newly built homes are selling quickly right now because builders are offering such good discounts,” said Heather Mahmood-Corley, a Redfin Premier real estate agent in Phoenix. “I recently had a buyer who wasn’t interested in a new construction home, but the builder offered such a good rate–5.25%–that they couldn’t afford not to take it. Another one of my buyers got a $10,000 credit for closing costs from a builder.”
Low housing inventory improves new home outlook
Market availability has a big impact on real estate’s direction. Fewer homeowners put their homes for sale last year, leading to less housing inventory for buyers, Redfin said. If buyers wanted a home, new construction was sometimes the only option—but they can be more costly than older homes. More than 40% of new homes sold in 2022 cost $500,000 or more.
The situation is partly supply-and-demand driven. It’s also a question of developers and home sellers pricing homes in line with whatever the market will bear.
In some city neighborhoods where rowhouses were recently selling cheaply (within the past 15 years), even older, smaller but newly renovated rowhouses in city neighborhoods outside New York and other large markets often sell for $250,000 and up. The housing supply is still tight.
Builders have hiked home prices, as well, said Christine Kooiker, a Redfin Premier real estate agent in Grand Rapids, MI. “One of the builders in Grand Rapids that focuses on entry-level homes now has prices in the mid $300,000 range. Not long ago, buyers could get a new construction home here for $250,000 or $300,000.”
It’s unclear how long this new home construction and sales boom will last, but it doesn’t appear to be slowing down. The U.S. Census Bureau’s March report on housing starts had rosy news for builders and homebuyers. More new home inventory could ultimately result in a stronger buyer’s market.
According to the U.S. Census Bureau, privately‐owned housing starts in February were at a seasonally adjusted annual rate of 1,521,000, 10.7% above the revised January estimate of 1,374,000 and 5.9% above the February 2023 rate of 1,436,000. Single‐family housing starts in February were at a rate of 1,129,000. That’s 11.6% above the revised January figure of 1,012,000. In February, 377,000 buildings with five units or more were started.